Download Political uncertainty makes gold great again

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Political uncertainty makes gold great again
Sydney, 06 February 2017 – The gold price has surged back above US$1,200 per ounce as investors have
poured back into the safe haven asset to protect themselves against uncertainty from Trump’s failure to
provide clear details on how he plans to make America great again, according to Russel Chesler, Director
Investments & Portfolio Strategy, VanEck Australia.
Gold ended 2016 at US$1,146 and has since risen above US$1,200 per ounce. Gold mining stocks, which
provide leverage to the gold price, have enjoyed a surge in January with the VanEck Vectors Gold Miners
ETF (ASX code: GDX) gaining 8.79% for the month.
“Prior to Trump being sworn in the market had ridden a wave of euphoria. Equity markets were focusing on
Trump’s planned stimulus however his proposal to have Mexico ‘pay’ for the wall via a tax on Mexican
imports and the implementation of his immigration policy have caused markets to reassess what a Trump
presidency may actually mean,” Mr Chesler said.
“So far Trump’s policies have caused uncertainty. The question now is will the current gold run last?” Mr
Chesler said.
According to Chesler, gold is not just responding to political uncertainty but also due to fears of inflation.
“Gold has traditionally been used by investors as a hedge against rising inflation and fiscal stimulus could
support the rise of inflation in the US. Infrastructure spending, tax cuts and deregulation could still occur with
Republicans in control of the White House and both houses of Congress. All of these policies could
encourage spending and put pressure on prices,” Mr Chesler said.
“Furthermore if you look back historically since Nixon abandoned the gold standard in 1971, there have been
seven new US presidents inaugurated to the White House prior to Trump. In the year following each of those
inaugurations gold has outperformed equities five out of seven times.
“With rising inflationary pressures and significant concern regarding the stability of Trump’s leadership, gold is
well positioned to rally in 2017,” Mr Chesler said.
Australian investors can access global gold miners by investing in GDX which is the world’s largest ETF of its
kind and gives investors instant access to a diversified gold portfolio in a single trade on ASX.
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Table 1: Performance of the gold price compared to the S&P 500 following the inaugurations of seven
new US Presidents
Year New president 1974 Ford 1977 Carter 1981 Reagan 1989 Bush 1993 Clinton 2001 Bush 2009 Obama 2017 Trump Average in presidential transition years
Annual average from 1974 to 2016
Calendar year returns Gold S&P 500 72.3% ‐29.7% 22.6% ‐11.5% ‐32.6% ‐9.7% ‐2.2% 27.3% 16.8% 7.1% 2.5% ‐13.0% 24.4% 23.5% ?? ?? 14.8% ‐0.9% 8.4% 9.0% Source: Merk Investments. Past performance is not a reliable indicator of future performance.
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